If you aren’t married and have no children, you may think you don’t need an estate plan. But nothing could be further from the truth. Unlike with married couples, there could be no specific person who can legally make medical decisions for you should you become incapacitated. And if you were to die without an estate plan, your property would likely go through the probate process and potentially be awarded to a beneficiary you never would have chosen yourself. There are also tax minimization issues to consider.
Why You Need a Will
It’s critical for single people to execute a will that specifies how and to whom their assets should be distributed when they die. Certain assets can pass to your intended recipient(s) through beneficiary designations (for example, on retirement plans and insurance policies). But without a will, many types of assets will pass through the laws of intestate succession. These include real estate, financial accounts and other property.
Laws vary from state to state, but generally they provide for assets to go to a deceased person’s spouse or children. If you’re single with no children, however, these laws set out rules for distributing assets to your closest relatives, such as parents or siblings. Or, if you have no living relatives (or they can’t be found), your assets may go to the state. By preparing a will, you can ensure that your assets are distributed according to your wishes, whether it’s to family, friends or charitable oranizations.
It’s a good idea to sign a durable power of attorney that appoints someone you trust to manage your investments, pay your bills, file your tax returns and otherwise make financial decisions should you become incapacitated. In most states, a court will appoint someone to make these decisions on your behalf if you have no power of attorney. Not only will you have no say in who the court appoints, but the process can be costly and time consuming.
You should also prepare a living will, a health care directive (also known as a medical power of attorney), or both to ensure that your wishes regarding medical care — particularly resuscitation and other lifesaving measures — are carried out in the event you’re incapacitated. These documents can also appoint someone you trust to make medical decisions that aren’t expressly addressed.
The laws in some states allow a spouse, children or other “surrogates” to make these decisions. But if you don’t have a suitable surrogate (or in states without such a law), medical decisions generally are left to the judgment of health care professionals or court-appointed guardians.
Minimizing Gift and Estate Taxes
When it comes to taxes, married couples have some big advantages. For example, they can opt to use their lifetime gift and estate exemptions, and to transfer an unlimited amount of property to each other without triggering immediate gift or estate tax liabilities.
For single people with substantial assets, it’s important to consider employing trusts and other estate planning techniques. An appropriate trust, for example, can help you limit, or at least defer, gift and estate taxes while you target other goals, such as building a charitable legacy.
Life is Unpredictable
Maybe you’re young and healthy and think estate planning is something you can do later —possibly when you’re married. Don’t put it off. Life is unpredictable. With an estate plan, you can document your wishes and help ensure your assets go where you intend them to. Consult with an estate planning advisor as soon as possible.